Worries about lower demand from Western countries this year caused oil prices to drift lower, reversing some of the gains seen after the OPEC+ group announced a substantial production cut.
The US Energy Information Administration (EIA) also recently reported a draw of 4.6 million barrels from inventories for the week ending April 14, something that would usually put upward pressure on prices. Nevertheless, traders have been more focused on growing expectations that the US Federal Reserve will raise interest rates one more time in an effort to reduce inflation.
Phillip Nova analyst Priyanka Sachdeva said to Bloomberg about this:
“When the Fed’s commentary indicates further rate hikes, economic troubles look inevitable. The only ray of hope here is China’s reemergence, which is expected to be significant enough to outweigh the dented demand from the West.”
At the time of writing, Brent Crude was selling for $81.68, which would be below the OPEC+ group’s rumoured target of around $90 per barrel. Many oil producers can still make a reasonable profit at this point. For example, Darren Woods, the CEO of oil and lubricant producer Exxon Mobil, said back in 2017 that its shale operations would be profitable at prices as low as $40 per barrel.
Nevertheless, the US Federal Reserve is expected to press the pause button on interest rates after the next hike. Analysts at JP Morgan expect this to lead to a rally in oil prices, leading to crude oil being priced at $94 per barrel towards the end of this year.